Bonds

Treasury yields fall after the Fed cuts rates for the third time in 2019

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Stocks drop and bond yields rise after Fed cuts rates for third time since July

U.S. government debt yields slipped on Wednesday after Federal Reserve officials cut rates for a third time in 2019 and said they'd need to see a marked and persistent rise in inflation before hiking borrowing costs in the future.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.789%, while the yield on the 30-year Treasury bond was also lower at around 2.263%. The 2-year Treasury yield, more sensitive to changes in central bank policy, fell to 1.622% following the Fed decision.

Though the Fed voted to cut its overnight lending rate by 25 basis points, yields rose slightly after officials suggested in a statement that its third rate cut for 2019 could be followed by a pause in policy adjustments. The Fed will now target the federal funds rate in a range between 1.5% and 1.75%.

"The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate," the statement said. FOMC members cited weak inflation outlook and global growth concerns in cutting borrowing costs again.

The FOMC removed a key clause that had appeared in post-meeting statements since June, when it began broadcasting that it would "act as appropriate" to sustain economic growth in the U.S. Its removal signaled to some that the series of "mid-cycle adjustments" rate cuts could be put on hold for now.

But Chairman Jerome Powell added later on Wednesday that the central bank would need to see a sustained and significant uptick in price pressures before considering future rate hikes.

"So I think we would need to see a really significant move up in inflation that's persistent before we would consider raising rates to address inflation concerns."

Both Kansas City Fed President Esther George and Boston Fed President Eric Rosengren dissented and would have preferred to leave rates unadjusted. St. Louis Fed President James Bullard, who had previously favored steeper rate cuts, did not dissent with the Fed's October decision.

"I thought the goal of the meeting was to try not to force Powell's hand to cut and I thought the statement he gave on the offset was down that path ... he said things that were more balanced," said Jim Schaeffer, deputy chief investment officer at Aegon Asset Management.

"Then I thought he got more hawkish in the meeting, talking about insurance," Schaeffer added. "But toward the end he seemed to pull it back a little. The bottom line from Powell is not that they aren't going to cut again, but don't expect it."

Since the Fed's September meeting, the economic situation in the U.S. has proved stable, with softness in retail sales largely balancing multidecade lows in the unemployment rate and modest wage increases. Some have suggested that with trade tensions between the U.S. and China easing, better-than-expected corporate profits and stronger data, the Fed will be anxious to halt its "mid-cycle adjustment" of lowering rates.

The government's GDP report on Wednesday showed the economy expanded at a 1.9% rate in the third quarter, better than what economists polled by Dow Jones had forecast but still shy of the 2% in the second quarter.

Treasurys